Retirement
Bulk Annuities
Buy-ins and buy-outs that transfer some or all of a defined benefit scheme’s pensioner liabilities off the sponsor’s balance sheet.
Ladies View, Co. Kerry · Marco Ober, CC BY-SA 4.0
Who it is for
Scheme trustees, sponsors and their brokers
What it does
- Pensioner buy-in and full scheme buy-out
- Data cleanse support before pricing is committed
- Price locks and asset-in-specie transfers considered
- Member communications handled jointly with the trustees
The product in full
A defined benefit scheme is a long-dated, uncertain liability sitting on a corporate balance sheet, and most sponsors would rather it were not there. A bulk annuity moves it. In a buy-in the trustees purchase an insurance policy that pays the pensions, and the scheme continues to exist holding that policy as an asset; in a buy-out the members become policyholders of the insurer directly and the scheme is wound up.
The commercial process is dominated by data. A scheme’s liability is only as knowable as its member records, and pricing committed against uncleansed data is a risk the insurer has to charge for. So the sequence is deliberate: indicative pricing on the data as it stands, a cleanse, then committed pricing on the cleansed file. Schemes that skip the middle step generally pay for it in the price.
Transitions can be settled in cash or by transferring assets in specie, and a price lock can hold the terms while the trustees complete their own governance. Member communications are handled jointly, because the members hear from the trustees they know rather than from an insurer they have never dealt with.
Literature
Product literature is issued to appointed intermediaries. Ask your underwriter, or request it through the enquiry form.
- De-risking guideOn request
- Data requirements scheduleOn request
How it works
What happens, in order
From the first enquiry to the point the cover, the contract or the facility is in place.
Scope and structure are agreed
Pensioner buy-in, full buy-out, or a phased programme. From £5m of liabilities.
Indicative pricing on the data as it stands
Enough to tell the trustees whether the transaction is affordable before anyone spends money on it.
The data is cleansed
Marital status, addresses, benefit specifications, GMP equalisation. This is where most of the value is created.
Committed pricing, and a price lock if wanted
Firm terms on the cleansed file, held while the trustees complete their governance.
Transition and member communication
Cash or assets in specie, and a communication plan run jointly with the trustees.
The numbers
A worked example
Illustrative arithmetic, so the shape of the product is visible rather than described. Nothing here is a quotation or a projection.
A £40m pensioner buy-in
The stages of a representative transaction, with an illustrative effect from cleansing the data.
- Pensioner liabilities in scope
- £40,000,000
- Members covered
- 620
- Indicative price on uncleansed dataCarries a loading for what the file does not yet tell us
- £41,800,000
- Data cleanse
- 9 weeks
- Committed price on cleansed data
- £40,600,000
- Illustrative effect of cleansing
- £1,200,000
- Settlement
- Cash and gilts in specie
- Price lock
- Held to the trustee meeting
Illustrative and not an offer. Real bulk annuity pricing depends on the member profile, the benefit specification, the asset mix offered in settlement and market conditions on the pricing date. The cleanse effect shown is representative of what better data is worth, not a promise about any scheme.
Indicative against committed pricing
The same £40m liability, before and after the data cleanse.
View these figures as a table
| Value | |
|---|---|
| Best estimate liability | £40m |
| Indicative price — Uncleansed data | £41.8m |
| Committed price — Cleansed data | £40.6m |
Suitability
Where the Bulk Annuities fits
The cases it answers, the cases it does not, and what an underwriter needs before quoting.
It is the right answer when
- Schemes with £5m or more of pensioner liabilities.
- Sponsors who want the liability off the balance sheet in stages or in full.
- Trustees prepared to invest in a data cleanse before committing.
Look at something else when
- Schemes that intend to continue running — the Defined Benefit Pensions service administers those.
- Liabilities below the £5m minimum.
What we need to quote
- 1.The benefit specification and the trust deed and rules.
- 2.A member data file: dates of birth, marital status, pension amounts, increase bases.
- 3.The latest actuarial valuation, and the assets available for settlement.
Questions
What brokers ask us about this product
What is the difference between a buy-in and a buy-out?
In a buy-in the trustees hold the policy as a scheme asset and remain responsible to members. In a buy-out the members become the insurer’s policyholders and the scheme can be wound up.
Why does data quality change the price?
Because an insurer prices what it can see. Unknown marital status, unspecified increase bases and unequalised GMPs all have to be assumed conservatively, and the assumption costs money.
Can assets be transferred instead of cash?
Yes, in specie transfers are considered — gilts most readily. It avoids the trustees selling assets to raise cash and then the insurer buying similar ones back.
Request information
Ask us about the Bulk Annuities
The form reaches an underwriter in Dublin. If you are an intermediary, say so and we will route it to the broker desk.